Goldman Sachs brings Bitcoin-backed loans to traditional finance

Lending and borrowing have become words associated with Bitcoin. It’s the same with traditional finance where lending and borrowing remains a big part of the ecosystem. However, there was no intersection of these three. This stems primarily from traditional finance’s distrust of bitcoin. The digital asset, which remains largely unregulated, has not provided the kind of support traffic has been seeking. That’s until now.

Loans secured by Bitcoin in Tradfi

Investment bank Goldman Sachs has announced the introduction of Bitcoin-backed loans. In what is a first for a major US bank, Goldman Sachs has expanded its crypto offerings to include these bitcoin-backed loans. This is the first of its kind secured lending facility that will lend cash backed by BTC.

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Most of the time, banks have avoided cryptocurrency due to its highly volatile and unregulated nature. Nevertheless, various institutions have started providing crypto-focused services such as asset and wealth management, trading, and investing. All of this is a far cry from cash loans that use bitcoin as collateral.

A move like this will not only see Wall Street adopt cryptocurrency faster, but other factions in traditional finance will begin to move in this direction.

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Goldman Sachs has undoubtedly evolved in its view of bitcoin over time. Less than two years ago, the bank did not believe cryptocurrency was an asset class. Since then, it has not only recognized it as an asset class, but offers its clients a way to trade cryptocurrency. It also has a crypto research team that publishes reports on the crypto market. Over the months, these reports have mostly been bullish on digital assets such as Bitcoin and Ethereum.

Cryptographic guarantees

Although this is the first time a major bank has accepted bitcoin as collateral for a loan, it is by no means a new concept. The rise of the decentralized finance (DeFi) space has allowed users to borrow against their crypto holdings for a long time. There are DeFi protocols dedicated to this in space.

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In this regard, traditional finance is catching up with DeFi which requires no paperwork for individuals to obtain a loan. With a deal like the one offered by Goldman Sachs, it can help bridge the gap between traditional finance and decentralized finance.

Bitcoin is trading at $38,927 at the time of this writing, down 2.64% in the last 24 hours.

Featured image from Bitcoin Lending, chart from TradingView.com

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